How does Montgomery's debt stack up to other Alabama cities?

U.S. bond prices fell, with the 10-year yield hitting its highest in over four years, amid worries about growing government debt and inflation as oil and commodity prices climb. Aleksandra Michalska reports.
Newslook

At the moment, our debt is about $20 trillion, or about $160,000 for every household in the U.S. We have to find a long-term path to deficit reduction — through spending reductions, increased taxes, or a combination of the two. But using the debt ceiling as a means of reining in excessive spending has not worked since an aggregate ceiling was put in place almost 80 years ago.(Photo: Getty Images)

At the end of fiscal year 2017, Montgomery had about $303 million of debt. City officials project that number will drop to about $290 million at the end of this year.

When those numbers rear their head, the question of how much debt is too much debt quickly ricochets across social media and between city officials. Depending on who you talk you, the city is drowning in debt, or it is healthily chugging along. The Montgomery Advertiser sat down with city finance officials to dissect city borrowing and how it stacks up to other parts of the state.

$303 million: Total debt that is expected to drop to $290 million at the end of the fiscal year.

$33.5 million: That is the amount of money that will come from the general fund to pay down the city's debt in fiscal year 2019

13.4 percent: That is how much of the city's budget is taken up by debt payments.

"I think if you were to look at other cities, I don’t think you would find anyone higher than 13 percent. I think 13.5 percent is as much as we’d like to see," said Barry Crabb, city finance director.

In other words, the amount of debt isn't unhealthy, he said, according to the city's calculations.

When it comes to citizens' concerns about debt, Crabb said that they should look to other cities examples in Alabama.

Birmingham ($542 million), Huntsville ($784 million) and Mobile ($259 million) all had more or comparable levels of debt to Montgomery ($303 million), according to their 2017 finance reports.

Cities, like Birmingham and Huntsville, can take on higher levels of debt because they have higher revenues, Crabb said, a common calculation used by municipal finance officials.

“Birmingham ($542 million), Huntsville ($784 million) and Mobile ($259 million) all had more or comparable levels of debt to Montgomery ($303 million)”

According to 2017 finance reports.

Government finance experts say there are no hard and fast rules for municipal borrowing. There are uncountable metrics and levels that can be recommended, but each city has to find out its own best practices.

There are state limits to how much debt the city can take on, but Crabb said that number far exceeds what the city would want to safely borrow.

The lack of defined guidelines makes borrowing a controversial aspect of governance because citizens each have their own view about the responsibility and role of debt.

In the past, leaders had been open to using new loans to pay for things like the new LAMP high school building, Crabb said. Education debt is at about $56 million, he said, which is about 20 percent of the total amount.

“We may have no managerial oversight of the school, but we are very supportive of it,” Crabb said.

Now, without new revenue streams, he would only recommend additional debt for something like a large economic incentive package that would bring in 1,000 or more jobs.

When Mayor Emory Folmer left office in 1999, the city had about $45 million in debt. Under Mayor Bobby Bright, that number rose by 386 percent to $221 million in 2009 when he left office.

That wasn't just wanton spending, Crabb said. Bright's administration built several new pieces of infrastructure around the city, like the Riverwalk, and made needed upgrades to numerous schools and building around the city.

Since 2009, when Mayor Todd Strange came into office, debt has continued to rise, but at a much slower pace of about 30 percent. That helped fund projects like the Cramton Bowl updates, City Hall renovations and education projects. For now, that number will continue to drop, Crabb said.

The pervading philosophy surrounding municipal borrowing is to take out money for projects that citizens need and will use, Crabb said. There are often situations where a city can't fully pay for a project outright, but changes are needed. Like buying a home, most citizens, and the city, would love to pay outright for those purchases, but sometimes it isn't feasible.

Asked directly whether he believes the city has used debt wisely and it is at a reasonable level, Crabb answered affirmatively.

"Its not what I would call unmanageable," he said. "It is at the peak of what I would call responsible."